Sep 17, 20225 min
Hey Wealth Builders!
This week, the consumer price index (CPI) was reported that it increased 0.1% for the month and 8.3% over the past year. Excluding volatile food and energy costs, CPI rose 0.6% from July and 6.3% from the same month in 2021. Economists had been expecting headline inflation to fall 0.1%.
It seems that even with the Federal Reserves efforts of increasing interest rates to cool inflation down, it hasn't been working as we all thought it would. Because of this, the stock market took another plunge.
What 's Steve Investing? 📈
SPY
We broke down the magenta support line and $390 level this week. If we continue to sell off further, we may retest our previous June lows of around $361. Hang on tight. I personally will be holding my cash as a position right now.
AAPL
Interesting enough, AAPL landed right on the $151 level on Friday. This has been an area of support and resistance in the past. If we break and stay below this, prepare to see the markets fall as a whole since AAPL is a large component in the S&P500.
AMZN
AMZN also broke support. However, we finished with a green hammer. This might indicate that the bulls are willing to move this stock back up.
GOOGL
GOOGL had a major drop compared to its S&P500 components. I'm anticipating that it's going to retest the $100 level, which served as support back in May 2021.
MSFT
MSFT is also coming close to its $241 support.
AMD
Lastly, I predict that AMD is going to retest the $72 level, as this served as a major support line all throughout 2020 and 2021.
Trade Of The Week:
Looking at the technicals this week, it seems that many stocks are nearing some sort of area of support. I think we may continue to have some volatile movements in the upcoming days and start to trend neutrally. To be on the safe side, I'm not starting any new covered call or cash-secured put trades this week. However, I am still selling covered calls on my initial positions. I'm currently going further out in expiration date (4-6 weeks out), to get more extrinsic value in the premiums I collect. Remember that the goal is to sell our contracts and let them decay in value over time. We use this strategy as a mean to collect capital while we wait for the markets to bounce around due to macroeconomic fears. I'll also be adding some bear call spreads to collect more premium.
Ask Steve 💭
Let's see what some of our members asked this week. Here are the top questions we received:
Q1. Which paper trading platform do you guys recommend that I use to practice and then using the same platform once I get comfortable enough to start actively trading? In one of your articles, you guys listed Etrade, Thinkorswim by TDAmeritrade, Active Trade Pro by Fidelity. Leaning towards TDAmeritrade, but Charles Schwab also has StreetSmart Edge.
A1. We love TD Ameritrade's Thinkorswim Web Platform for both paper and real trading.
Q2. What are the pro's and con's of selling covered calls on a LEAP vs selling covered calls on a stock that you own 100 shares of?
A2. Wonderful question! You're most likely referring to a Poor Man's Covered Call, where we sell an option against a LEAPS option. In this scenario we don't own 100 shares. We can only sell a covered call if we have 100 shares.
To answer your question, the pros of selling a PMCC is that we don't technically need to own 100 shares before selling a call. In downtrending markets, a PMCC allows us to reduce the cost basis of our LEAPS. A PMCC also requires less capital. A con is that you are utilizing a LEAPS to sell a call which is can have higher risk with the volatile movements of holding onto a LEAPS contract. LEAPS contracts also have theta decay.
With covered calls, the trade is more capital intensive compared to a PMCC. However, holding onto 100 shares does not incur any theta decay in the value of the shares.
Q3. I currently have a Roth 401k through my employer and a standard individual brokerage account. Do you recommend still opening a ROTH IRA even if I have a Roth 401k set up? If so, how do you recommend breaking up my monthly contributions between the ROTH IRA and my individual brokerage account?
A3. What you do with your portfolio is completely up to you. With Roth 401Ks, your employer may give you a company match up to a certain percent. This is essentially free money from your employer. However, with the Roth 401K, you are typically limited to what investments you can make.
As for Roth IRAs, there is no employer match. You can, however, have the freedom to invest in more options compared to the Roth 401K. You can even sell covered calls within a Roth IRA.
You could start simple by contributing $500 to your Roth 401K and another $500 to your Roth IRA. In the end, do what is most comfortable for you.
Q4. Also, what kind of trades and investing should I focus on within each account?
A4. We like to be more conservative in our Roth IRAs, where we mostly invest in ETFs that track the S&P500, like SPY and VOO. You can also consider investing in DOW30 components, like APPL.
Q5. Do you suggest having dividend paying stocks/ETFs automatically reinvest back into the same stock? Or should I hold dividend cash to buy other shares or start wheels?
A6. What you do with your dividends is completely up to you. We like reinvesting our dividends into long-term holds. This can be either an ETF that tracks the S&P 500/DOW 30 or fundamentally and technically strong stocks like AAPL. You can also consider having your dividends be spent by you on a quarterly basis. You can treat this as a reward and a wealth reminder of what if feels like being a shareholder of many companies.
📌Submit Your Questions 🙋♂️🙋♀️
Have any other questions? Before asking me and my team, feel free to check out our Level 1 FAQ. This FAQ is located on the Dashboard. You might find what you're looking for. 😊
If you do have questions, make sure to ask them on our Dashboard, rather than asking us via email. We also encourage you to watch all of the core video content and some of the past archived videos, read past Membership Positions, and take all the quizzes before sending us your questions.
📌Join Our Discord 💬
Investing, trading, and building wealth was a lonely journey for me. This is why my team and I created a Discord group for you and the other members to shares ideas and support one another. You don't have to go through it alone as we're all here to help. 😉
Make sure to check it out on the bottom of your "Dashboard" and follow the instructions on how to sign up. Coming from a teacher's perspective, I believe it's important to engage in conversations with people who are also seeking to reach financial freedom.
Remember that we are a community of wealth builders at all different levels, so be positive, kind, and helpful to others, so we can help each other get to financial freedom much faster.
Hang in there, everyone. I expect more volatility from now until the beginning of November. You are all doing well with keeping calm and patient. 🙏
-Steve and the Call to Leap Team
The following article is strictly the opinion of the author and is to not be considered financial/investment advice. Call to Leap LLC and the author of this article does not claim to be a registered financial advisor (RIA) or financial advisor. Please visit our terms of service and privacy policy before reading this article.